Former Secretary of the U.S. Treasury and current Cerberus Capital Management C.E.O. John Snow regularly chats with his replacement, Henry Paulson. Snow is one of a handful of American executives who can probably pick up his Blackberry and give a friendly shout-out to George Bush, his former boss. Snow and his small army of lobbyists will need every friendly ear they can find if they want to ensure the upcoming TARP bailout of the auto industry includes generous financial terms for Cerberus-owned Chrysler.

Cerberus (named after the three-headed dog that in Greek mythology guards the gates of Hell) is rumored to be reeling from a series of bad business breaks, the latest announced yesterday by Cerberus controlled Japanese bank Aozora. Aozora reported investing with money manager Bernard Madoff, losing an estimated $137 million.

But that not the only problem at Aozora. Earlier this week, Reuters reported that the Japanese bank would securitize $3.5 billion worth of loans, its largest such securitization in at least two years. Securitization, which involves banks pooling assets such as mortgages and reselling them to investors for a fee, was a prime factor in spreading the risk and losses from U.S. sub prime mortgages globally.

Back in North America, Cerberus-controlled GMAC Financial has again extended and sweetened its offer to exchange $38 billion of its debt held by its divisions and mortgage business, Residential Capital LLC, for cash, new notes or preferred stock.

As reported in the International Herald Tribune, the exchange is part of GMAC's bid to become a bank holding company and eligible for a piece of the government's $700 billion bank rescue plan. GMAC has warned that a failure to convert to a bank holding company would have a "material adverse effect" on its business. Not too long ago, GMAC Financing was the main lender to consumers wanting to buy a GM car, but over the last few months, GMAC has repeatedly increased its auto loan qualification standards, eliminating potential GM car buyers and adding to the auto manufacturers woes.

Additionally, GMAC recently exited the auto leasing business, a move that hurt auto sales at both GM and Chrysler. With business at practically a standstill, GMAC offices in both Canada and the United States have laid-off hundreds of workers.

Cerberus-controlled NewPage Paper has closed mills in Wisconsin, idling hundreds of workers and garnering headlines---mostly negative---for Cerberus. Cerberus/Chrysler remains in dispute with Daimler, the former owner of Chrysler, over the terms of the company's sale, claiming to have been 'misled' by the German automaker.

Populist economist Ben Stein, during a December 5 interview on Larry King Live, made a glum assessment of Cerberus's future. "They don't have any more money. They're in terrible shape. They also own GMAC--for 51 percent. They have been devastated by both investments."

How did a once-high-flying firm like Cerberus end up with so many troubled assets?

We've all heard or read of the 'housing bubble'. During the pre-crash, easy-money years of 2002-2007, a 'business bubble' formed as private equity firms competed over the purchase of businesses. Private equity executives were willing to pay far more than companies were worth, on the assumption they would quickly 'flip' the business and collect a tidy profit. Why else would the smart operators at Cerberus burden themselves with underperforming companies like Chrysler, GMAC, Aozora and NewPage?

Today, in the post-crash world of December 2008, private equity companies are unable to sell businesses they paid too much for and are increasingly faced with the bone-chilling prospect of having to make money the old-fashioned way: providing goods and services people want at a reasonable profit.

Despite protests to the contrary, Cerberus appears to have little long-term interest in Chrysler. Last week, The Detroit business reporter Tim Higgins reported that Chrysler ended discussions with automaker Chery about co-producing a new economy car. Tennessee Congressman Corker has accused company executives as using the loan as a bridge until they unload the company.

That is why it is important for President Bush to think carefully before approving any TARP-funded Cerberus/Chrysler bailout. Cerberus doesn't have a track record of successfully running businesses: their forte is making business deals.

Is Cerberus the right company to lead Chrysler and GMAC into a leaner, innovative, more profitable future? Or will the TARP bailout be nothing more than corporate welfare disguised as a make-work project for soon-to-be unemployed auto workers?

John Snow and his lobbyists are calling the White House day and night advocating a strings-free bailout. But we citizens can also make our voices heard. Give President Bush a ring and let him know your opinion on the Cerberus/Chrysler bailout. Call 202-456-1111 or e-mail the White House at comments@whitehouse.gov.

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